Search smh:

Search in:

RBA to sit tight on 2% cash rate in Feb

Lucy Hughes Jones

The Reserve Bank is unlikely to budge from its neutral interest rate stance next week, but it may ramp its easing bias up a notch.

All 14 economists surveyed by AAP expect the RBA to keep the cash rate unchanged at its February meeting on Tuesday, and eight expect them to remain on hold for the entire year.

The central bank cut its interest rate by a quarter of a percentage point last February and again in May, taking the cash rate to a new record low of two per cent.

Markets are currently pricing in about a four per cent chance of a rate cut next week, although one is fully priced in by July.

Advertisement

The RBA faces a trade-off between its desire to boost growth, to keep inflation in check, and the risks that lower interest rates could pose to financial stability, HSBC chief economist Paul Bloxham said.

"Australia's labour market continues to show signs of improvement, which should keep the RBA on hold for now," he said.

"However, inflation is low and forecast to stay subdued, leaving the RBA with scope to cut further."

The December quarter CPI figures show that the RBA's preferred measures of underlying inflation just scraped in at the bottom of the bank's two to three per cent target band.

And with growth tipped to run below trend for a fourth consecutive year in 2016, HSBC expects underlying inflation to drift below the target band in coming quarters.